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Thursday, April 23, 2015

Markets drift lower on earnings

Dow fell 20, advancers over decliners 5-4 & NAZ lost 4. The MLP index climbed 2+ to the 444s & the REIT index slipped a fraction to 330. Junk bond funds inched higher & Treasuries were lower, taking the yield on the 10 year Treasury near 2%. Oil is back in the 57s & gold had a modest gain, but is still under the important 1200 ceiling.

Applications for US unemployment benefits held below 300K for
the 7th straight week, pointing to a rebound in payrolls after
hiring eased last month. Jobless claims increased 1K to 295K in the latest week, according to the Labor Dept. The forecast called for 287K. Muted layoffs are helping boost prospects of a healthy labor market
even as employers slowed hiring in Mar amid weaker foreign demand,
chillier temperatures & fallout from the West Coast port workers’
dispute. Projections for more robust employment growth ahead may keep
Federal Reserve officials on course to raise the benchmark interest rate
this year for the first time since 2006. The 4-week average of claims climbed to 284K from 282K in the prior week. The
comparable reading for the Mar payroll survey week was 305K,
signaling employment could have picked up. The number continuing to receive jobless benefits rose 50K to 2.33M & the unemployment rate
among people eligible for benefits held at 1.7%, where it’s been
since mid-Mar. Claims below the 300K level point to an improving employment picture.

Caterpillar, a Dow stock, earnings forecast today topped expectations, thanks in part to solid sales in North America. The company is famous for giving a detailed assessment about the state of the world economy along with its financial reports & here's its latest assessment. The company is
forecasting global GDP growth for 2015 of 2.7%, up from 2.6% in 2014. Among the risks CAT continues to see:
Structural reform in China & uncertain monetary & fiscal policy in
the US. While the outlook for CAT sales & revenues is unchanged, the
expectation for profit has improved. CAT expects 2015 EPS will be $4.70, or $5.00 excluding restructuring costs.
The previous outlook for 2015 was $4.60, or $4.75
excluding restructuring costs. The expectation for 2015 restructuring
costs is now about $250M, about $100M more than the
previous outlook with the increase primarily related to facilities that
produce mining products. EPS in 2014 was $5.88, or $6.38
excluding restructuring costs. The stock rose 1.20. If you would like to learn more about CAT, click on this link:club.ino.com/trend/analysis/stock/CAT?a_aid=CD3289&a_bid=6ae5b6f7

Caterpillar (CAT)

Procter & Gamble, a Dow stock & Dividend Aristocrat, reported fiscal Q3 revenue that missed estimates
after the strong dollar crimped overseas sales. Revenue fell 7.6% to $18.1B. Analysts estimated $18.4B. PG gets the majority of its sales outside North America, making
it especially vulnerable to currency fluctuations. Foreign exchange
damped sales by 8 percentage points & will reduce
revenue for the year by as much as 7 percentage points, the company
said. CEO A.G. Lafley said that P&G will keep
working to cut costs to make up for the currency headwinds. “As we have done before, we’ll offset foreign exchange over time
through a combination of pricing, mix enhancement and cost reduction,”
Lafley said. EPS excluding some items was 92¢,
matching the estimate. The beauty division, with products
like Pantene shampoo & CoverGirl makeup, continued to struggle, with a
3% sales decline, excluding currency effects. The grooming
division, which sells Gillette razors, posted a 9%
currency-neutral gain, while laundry & fabric-care sales were
unchanged on that basis. Overall sales growth excluding currency effects
was the lowest in 6 years. PG held or increased market share in about half of its
categories globally & about 60% in the US, CFO Jon Moeller said. That happened without a significant
increase in spending to promote its brands. “It’s not something that we prioritize,” he added. “We would much
rather spend a dollar on innovation or building the equity of our
brands.” In addition to the cost cuts, Lafley is
shedding 100 underperforming brands to streamline the company. Lafley, who’s approaching the 2nd anniversary of his 2nd tenure
as P&G’s CEO, is said to be preparing to step down this year. Since
returning, he’s remade the company by reorganizing into fewer units &
selling the pet-food & battery businesses. EPS fell to 75¢.
PG maintained its annual forecast of double-digit EPS growth, excluding currency impact. The stock fell 1.08. If you would like to learn more about PG, click on this link:club.ino.com/trend/analysis/stock/PG?a_aid=CD3289&a_bid=6ae5b6f7

Procter & Gamble (PG)

Earnings reported later in the season tend to be less impressive & that is turning out to be the case this time. As if that weren't enough, the intl scene is hot helpful. Political chaos in the MidEast goes from bad to worse, forcing the US to send an aircraft carrier near Yemen. Overseas business is nothing to write home about & the strong dollar is making the translation of other currencies into dollars painful, as was predicted. But Dow is still above 18K & NAZ remains above 5K, both close to setting new records. Don't know how long the disconnect will last.